Kenya as an emerging economy is still largely an importer of goods and as rightfully put by many, there is need to encourage the SMEs to become exporters so as to help address the problem of trade imbalance. The other aspect is to encourage players in this sector to progressively add value to products so that the manufacturing sector can grow, whilst they service both local and export markets. The sector will continue to remain a crucial player in the economy as it mainly serves the rapidly growing middle class, whilst also serving the larger corporate organisations.
The challenges experienced by the SMEs continue to be highlighted through various forums with key among them being:
- Lack of access to finance mainly due to inadequate security.
- Lack of proper systems and structures, resulting in inefficiencies due to lack of proper mentorship.
One financier in the market, Business Partners International Kenya Limited (BPI), has endeavoured to synchronise the various challenges faced by SMEs by developing a funding model that is now globally recognised, and is playing a role in the market to develop these businesses further.
The BPI Kenya SME Fund was set up in Kenya in 2006. BPI Kenya is a local Investment Fund that provides SMEs with financing investment, added-value solutions and technical support.
The Fund size is US$ 14.1 million, whose investors include the International Finance Corporation (IFC), European Investment Bank (EIB), Commonwealth Development Corporation (CDC), East African Development Bank (EADB), and Sarona Capital.
BPI as a specialised risk capital financier focuses on funding SMEs that have viable businesses. Consideration is also made based on an entrepreneurs drive, vision, integrity and experience. BPI provides financing to formally registered businesses that include, Sole Proprietors, Partnerships and Limited Companies. Funding is provided for start-ups, expansions, management buy-outs and buy-ins, property purchase, contracts, and others. The Fund uses a unique model that structures the funding using a mix of debt, equity and quasi equity. Investee companies receive capital financing of between Kshs 4 million and Kshs 40 million, and funding is provided for a period of 60 months (5 years) inclusive of moratoriums where necessary.
Alongside the main funding, is a Technical Assistance (TA) loan that is provided to help businesses improve their processes. This loan is interest free and is subordinated to the main loan. Some of the processes the TA loan enhances include financial management systems, marketing plans, recruitment, website development, turnaround strategies to rescue businesses. TA loan is accessible throughout the term of the loan and up to 30% of the main loan can be advanced.
The Fund invests in all sectors other than primary agriculture, non-governmental organisations, on lenders, and residential property.
Since entry into the Kenyan market, the Fund has been able to make an impact in specific areas that include the following:
- Provided funding to more than 120 businesses in Kenya in the amount of over Ksh 1,45 billion.
- Of the businesses funded, employment has been created by about 25% in new jobs, with over 9,300 jobs being maintained, with over 1,200 new jobs being created.
- The businesses funded have in general been able to generate an increased turnover of 33% after receiving funding from BPI.
- The same businesses have also been able to generate increased profits by 79%.
- A total of about Ksh 45 million has been disbursed in TA to assist in various interventions.
- 100% of the businesses that have benefited from funding, are local indigenous entrepreneurs. Of these, about 39% are women owned businesses.
- Various sectors have benefited from funding ranging from, manufacturing, service related businesses, – supermarkets, printing and packaging companies, stone quarrying companies, tours and travel agents, juice manufacturers, pet food manufacturers, exporters of fresh produce, security businesses, mobile sanitation, freight forwarders, dairy processors, restaurants, event organisers, etc.
The achievements show that provision of financing together with provision of technical/mentorship services, not only enable the business to expand and acquire more, but also creates stability, and growth in each of these businesses, thus ensuring sustainability.
BPI as a private equity firm supporting SMEs has been able to contribute to the growth of the respective SMEs by meeting their funding needs, purely based on viability. The SMEs have been able to create more employment which contributes to addressing the unemployment problem in Kenya.
The growth in profits and turnover has also shown the contribution the SMEs have made to the country’s GDP. Coupled with this is the fact that at the same time, these SMEs are becoming better managed businesses with greater efficiencies in their operations through the interest free Technical Assistance loan that is also provided alongside the main loan.
As the number of budding entrepreneurs grows in the market, it is encouraging to therefore note that players such as BPI can be one of the solution providers in providing not only finance, but technical/mentorship services that enhance the operations and processes of these young and growing businesses.